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Using Trading Volume To Estimate Liquidity

One of the more important measures investors consider when analyzing a stock is it's relative liquidity. Sometimes it's obvious and sometimes you need to dig a little deeper. The following table identifies the 16 companies in my current tracking list and ranks them in order of declining liquidity as measured by the number of times per year their issued and outstanding stock turns over in the open market.

As a general rule, companies toward the top of the list have a lot of interest from hot money and companies toward the bottom have little or no interest from hot money.

  Trading Outstanding Annual Turnover
  Symbol Shares Volume Frequency
A123 Systems AONE 146,862,868 719,888,700 4.90
Exide Technologies XIDE 78,283,690 248,781,500 3.18
Enersys ENS 47,742,565 138,563,100 2.90
Tesla Motors TSLA 104,604,044 299,374,900 2.86
Johnson Controls JCI 680,455,203 1,441,801,800 2.12
Maxwell Technologies MXWL 28,212,494 59,471,900 2.11
Active Power ACPW 95,427,235 167,400,100 1.75
Kandi Technologies KNDI 27,447,593 29,572,000 1.08
UQM Technologies UQM 36,531,530 36,241,900 0.99
China BAK Battery CBAK 63,816,276 54,441,200 0.85
Valence Technology VLNC 169,976,618 144,226,400 0.85
Altair Nanotechnologies ALTI 69,452,487 50,895,900 0.73
Axion Power AXPW.OB 113,211,091 78,538,200 0.69
ZBB Energy ZBB 41,055,079 28,436,600 0.69
Ultralife Corporation ULBI 17,360,435 11,280,600 0.65
Highpower International HPJ 13,582,106 6,188,700 0.46

While Turnover Frequency is not an obvious metric for retail investors, it is a critical pricing consideration when a company is negotiating deal terms for a new offering and the general rule is the lower the Turnover Frequency, the higher the discount.

Disclosure: I am long AXPW.